Ohio Senate passes payday loan bill

Posted Jul 10, 2018

ACE Cash Express store in Albuquerque, N.M. On Tuesday, the Ohio Senate adopted a bill that would lower interest rates and fees on payday loans. The changes that the Senate made to House Bill 123 need to be approved by the House, which adopted a different version of the bill. (Vik Jolly/Associated Press file)

COLUMBUS, Ohio - The Ohio Senate passed a bill Tuesday afternoon that promises to rein in payday lending -- though the bill has at least one more stop before it could be sent to Gov. John Kasich's desk.

Senators voted 21 to 9 for a version of House Bill 123 that ensures payday lenders abide by a 28 percent interest rate cap for loans up to $1,000 for up to 12 months.

Assuming the Ohio House agrees to the Senate's version, the estimated 1 in 10 Ohioans who take out payday loans will save $75 million a year, according to estimates.

The Ohio House passed a different version of House Bill 123 in June and is on recess at least until Sept. 19, meaning it likely will not look at the bill for months.

Under the version of H.B. 123 that the Senate passed Tuesday, a $500 loan would have $123.32 in interest and fees at 30 days, and $300 at 12 months.

For a $1,000 loan, fees and interest would be $531.60 at a year.

Under the Senate's version of H.B. 123, which it calls the Fairness in Lending Act:

The maximum loan limit would be $1,000, up from $500 in the House version of the bill.

Terms of the loan would last no more than 12 months. The House's bill had had no fixed lengths of time for loans.

The cost of the loan - fees and interest - cannot exceed 60 percent of the loan's original principal. Under the House bill it was 50 percent.

The interest rate would be no more than 28 percent - the same rate under the House version and in alignment with what voters upheld at the polls in 2008.

There would be no loans under 90 days unless the monthly payment is not more than 7 percent of a borrower's monthly net income or 6 percent of gross income. Under the House bill, the total monthly payment including fees and interest could not exceed 5 percent of gross income or 6 percent of net and there were no fixed lengths of time for loans.

Borrowers would be prohibited from carrying more than a $2,500 outstanding principal across several loans. There is no similar provision in the House version of the bill. Payday lenders in the substitute bill would have to make their best effort check their commonly available data to figure out where else people might have loans. The substitute bill also authorizes the state to create a database for lenders to consult.

Lenders could charge a monthly maintenance fee that's the lesser of 10 percent of the loan's principal or $30. The House bill allowed a monthly maintenance fee of $20 or 5 percent of the first $400 borrowed, whichever was less.

For loans that last longer than 90 days, the lenders would have to provide the consumers with a sample repayment schedule based on affordability.

It would prohibit harassing phone calls from lenders.

Would require the lender to provide loan cost information orally and in writing.

Borrowers would get 72 hours to change their minds about the loans and return the money, without paying any fees. The House version allowed for 24 hours to reconsider.

Closing a loophole

The payday lending industry opposes both the House and Senate versions of H.B. 123. Lenders say they assume risk by lending money to people with poor credit and need to set their rates to stay in business.

"If we can make some changes to this and have it be materially less expensive than what exists today, I'll support it, I'll work with you," Saunders testified Tuesday morning in the Senate Finance Committee, which advanced the bill hours before the full Senate voted on it. "But in its current form I can't support it simply because I can't operate under it."

However, the committee's chair, Sen. Scott Oelslager, has noted the industry has had 17 months since the bill was first introduced. It also had 10 years to ask the legislature for a remedy.

"Why didn't you come forward then? Oelslager said. "If you would have taken a proactive role, we may not be standing here today."

In 2008, the legislature adopted a law that capped payday loan interest rates at 28 percent. Payday lenders attempted to repeal the bill at the ballot box, but Ohio voters upheld the legislature's rate cap.

Then the lenders registered under a new part of Ohio law and were able to skirt the 28 percent interest rate, which the industry says is so restrictive they will go out of business. The Pew Charitable Trusts has research showing Ohio's average payday APR is 591 percent - the highest in the country. The industry disputes the figure.

'Living paycheck to paycheck'

Most Ohioans who seek payday loans live on tight budgets, Nick Bourke of the Pew Charitable Trusts said.

"They're living paycheck to paycheck and trying to pay their bills," he said. "And things happen. Their hours get cut... Their house gets damaged, their car gets damaged, they have a little medical issue."

The loans are harming them, he said.

The bipartisan-sponsored bill was first introduced in March 2017. For over a year it was stuck in a House committee. Then Cliff Rosenberger resigned as speaker of the Ohio House amid an FBI probe into his travel with payday lending lobbyists. He maintains he didn't do anything wrong.

After Rosenberger's resignation, H.B. 123 was rocketed out of committee and the Ohio House with no changes - highly unusual for a bill that was so loathed by the payday lending industry.

"I think the majority (of senators) were in favor of being on the side of a little bit tighter regulation but certainly looser than what the House proposed," Ohio Senate President Larry Obhof said.

Oelslager, the Finance Committee chair, said when he was writing the version of H.B. 123 that the Senate ultimately passed, he examined the law in Colorado, which is considered a model. The is a payday industry in that state, he said.

"As long as there is need and money to be made, there will be a lender who can be competitive and profitable," Oelslager said.